Tycoons Shunning Financial Services as They Get Richer

Tycoons are shunning banks and
wealth managers, preferring to put a flood of money from selling
stakes in companies into property and new ventures rather than
trust industries whose reputations have been battered by the
global financial crisis.

Tycoons are shunning banks and
wealth managers, preferring to put a flood of money from selling
stakes in companies into property and new ventures rather than
trust industries whose reputations have been battered by the
global financial crisis.

Thomson Reuters data show that proceeds for shareholders
selling stakes in companies, excluding governments, have tripled
since 2008 to $183 billion last year, creating new millionaires
and making many wealthy people much richer.

But little of that cash appears to have made its way to the
wealth management industry, which specializes in looking after -
and increasing - the riches of the world's multi-millionaires.

The average increase in assets run for clients by wealth
managers and banks was 6.55 percent for the 100 largest
institutions in the sector, according to the most recent
analysis by finance industry consultants Scorpio Partnership
which based its research on published company earnings for 2011.

"Forgetting all the other ways of getting new money (for
banks and wealth management firms), there is a deficit there,"
said Cath Tillotson, managing partner at Scorpio.

Wealth managers argue that people enriched by share sales
are often serial entrepreneurs, and so more likely to invest in
another business venture than bank the proceeds or put them in
the care of an investment manager.

"They would tend to look for a relatively liquid and
short-term cash position while they look for the next long-term
opportunity, as opposed to saying:'I'm an entrepreneur, I've
made a lot of money, I'm going to cash out and become a typical
wealth client'," said Paul Patterson, deputy chairman at RBC
Wealth Management's 'ultra high net worth' international
division servicing the bank's richest clients.

However, strong growth in other sectors favored by the
super-rich, such as London's property market, suggests there may
be a problem for banks and wealth managers.

Research from property consultant Savills shows the
amount spent on London homes worth more than 5 million pounds
reached 4.1 billion pounds ($6.6 billion) in 2012, with the
number of transactions nearly doubling since 2008.

Property in stable jurisdictions appeals more than
conventional investments offered by banks, in part because of
the reputational damage they suffered in the financial crisis,
said Yolande Barnes, a research director at Savills.

"You could put it down to they (the super-rich) just don't
trust banks to make them or keep their money," Barnes said.

Banks have sought to access new clients through the rush to
luxury London property by offering rich buyers mortgages on
their Mayfair townhouses, but most of the clients at that end of
the market are cash buyers, she added.

"REMARKABLE GROWTH"

Wealth managers and banks have long blamed the weakness of
equity capital markets for their subdued performances.

But the Thomson Reuters data show that, stripping out share
sales aimed at raising money for companies and stake sales by
governments, the last few years has seen a boom in money raised
by private shareholders selling stakes in companies.

"In the four years since the market bottom, we've seen
remarkable growth in proceeds to selling shareholders - an over
30 percent compound annual growth rate, with well over half a
trillion dollars monetized since the beginning of 2009," said
Stephen Case, global head of deals and private equity at Thomson
Reuters.

Equity sales in 2012 that generated big pots of personal
wealth for entrepreneurs were dominated by the $16 billion
initial public offering (IPO) of social network Facebook.

The deal generated proceeds of more than $9 billion for
selling shareholders including founder Mark Zuckerberg, though
the shares subsequently slumped and investors who subscribed to
the deal were left out of pocket.

Also prominent among the 680 transactions in which owners
cashed in by selling their shares last year was the $1.8 billion
IPO of Russia's second-biggest mobile phone operator MegaFon
, controlled by Russia's richest man Alisher Usmanov.

According to research firm Wealth-X, 28-year-old
Zuckerberg's net worth stands at more than $16 billion, while
Usmanov is worth more than $22 billion.

One of the problems for banks and wealth managers is they
have relatively poor penetration in parts of the world where
much of the new money is being made.

"Wealth is being generated much quicker in markets like Asia
where the banks' ability to convert that wealth into assets
under management is much tougher because wealth management as a
concept is poorly understood and in many cases less needed,"
said James Lawson, a director of Ledbury Research, which
analyses trends among the world's wealthy.

Banks and wealth managers are pushing hard to expand into
Asian and other emerging markets. But they are also having to
invest time and money in meeting new regulations aimed at
preventing a repeat of the financial crisis and which could
ultimately help to rebuild their reputations.

"Banks have been so distracted by regulation, they haven't
been able to grow," said Scorpio Partnership's Tillotson.